Corporate Bailouts

What can a libertarian philosopher contribute to the ongoing debate over the government’s response our current economic malaise? In positive terms…not much! But here are a few questions that might lead us to a more enlightened conversation. First of all, why do we Americans continue to embrace deficit spending as a way of life? Why do we discount the value of a distant future on behalf of the immediate present? Why do all levels of government, all corporations, and almost all Americans live in debt? Why do we demand that our politicians nurture an economic environment marked by easy credit so we can borrow money from the future so we can live in spacious homes, drive new cars, and attend college now rather than later? Why do we max out our credit cards today, knowing full well that we’ll pay more for those goods over the long run, and perhaps even face foreclosure and/or bankruptcy next year? Why do so many of us risk our hard earned income on lotteries, and casino and online gambling? Pay day loans? Underfunded pension funds? In short, why do we believe that the only way for us to maintain our current standard of living is to perpetuate access to easy money, deficit spending, and to live our lives in debt? That’s a lot to digest in one blog! Simply put, here’s my short answer: We Americans have become excessively bound by tradition. We’ve become so dependent recycling old solutions to old problems that we’ve lost the ability to come up with new solutions to new problems. Why? Because centralized governmental structures have undermined our capacity for ground-level innovation via: legislative barriers, tax incentives, and corporate subsidies. The examples are legion: the persistence of transportation technology based on 19th century fossil fuels, employment-based health insurance, Medicare, Medicaid, Social Security, public schools, etc. Libertarians argue that government has a perverse tendency to support the status quo at the expense of innovation. Economic legislation tends to pursue equilibrium rather than change. Legislation such as professional licensure, institutional accreditation, and building codes tend to protect the status quo from external competition by erecting artificial barriers to innovators. How else can we explain the otherwise inexplicable fact that most of the high-level discussion on economic recover centers on bailing out old, large, tradition-bound corporations like AIG, General Motors, and Ford? The arguments in favor of these wholesale bailouts usually hinge on a collectivist, utilitarian premise, “too large to fail.” But why do we continue to believe that old, big, inefficient, and inflexible institutions are better than young, small, efficient, and flexible ones? So if the “Big Three” fail, what happens to all those workers? Well, they’ll probably have to wait for Honda, Toyota, and other younger, more innovative corporations to build newer, smaller, more efficient, and more flexible factories. But those workers will probably have to relocate to other states and go back to school and become more efficient. In a nutshell, when upholding tradition and the status quo no longer works, we must be willing to change. But first, we’ll have to overcome our government’s institutionalized preference for everything that is old, big, inefficient, and inflexible.

The Drug War

The easiest target for a libertarian public policy critique is the ongoing Drug War. From the outset, let me state unequivocally that I do not know of any libertarians that advocate drug use or abuse. However, the distinction here is important. Drug use becomes drug abuse, if and only if, it violates the non-aggression axiom or the property rights of others. In those cases, we expect government to punish offenders. So if you are stoned, don’t get in a car wreck and harm others! Drug use that is merely self-destructive and/or destructive of personal relationships must not and cannot be effectively controlled by government. You’ll have to pay the costs of your drug use. So don’t expect us libertarians to pay for your hospital bills when you pick a fight with a three-hundred pound NFL player in bar, and don’t expect us to pay for your rehabilitation and/or marriage counseling. You and your family can pay for it all. Put it on your Visa or MasterCard, take out a second mortgage on your home, or cash in your retirement funds! Libertarians prefer to let the free market work solve these kinds of problems. If you’re too stoned to work, then you simply cannot afford to be a self-sustaining drug addict or alcoholic. If you choose to steal from others, you’ll go to jail. Life is full of choices! But in the final analysis, the Drug War has been its own worse enemy. When you make drugs or alcohol illegal, and expend vast public resources monitoring and enforcing drug laws, you invariably raise the risk associated with selling and buying drugs and therefore raise prices. Because the government does not enforce contracts within the illegal drug trade, buyers and sellers enforce those contracts on their own through the use (and threats) of violence. If you plan on selling illegal drugs, you better be willing to beat up and/or kill non-paying customers. If you don’t, your buyers simply will not pay for their drugs. If you buy drugs that you can’t afford to pay for, you better have a loaded gun ready to protect yourself. If you would prefer to avoid shooting it out with a ruthless, well-armed drug dealer, you’ll choose to steal from your non-violent neighbors to pay that debt. (But don’t steal from a libertarian because he/she probably has a loaded gun waiting for you!) Hence, the illegal drug market attracts armed, ruthless buyers and sellers that are willing to violate the non-aggression axiom. If drugs were legalized tomorrow, and government began enforcing those risky contracts the most violent transaction costs would disappear. For a while, non-violent drug dealers would enter the market in search of profits, which may temporarily increase the supply of drugs , but dramatically reduce the market price. Now, let’s talk about long-term employment opportunities. Would you rather be a drug dealer that sells marijuana or cocaine for $1 a pound on the free market, or work at McDonalds for $8.00 an hour? At these prices would you bother to drive or fly to Columbia to pick up your inventory? Would you even be willing to pay Federal Express delivery charges? Moreover, at those prices you could afford to buy all the drugs you want on your McDonald’s salary and you wouldn’t be tempted to risk stealing from your unarmed, non-violent neighbors. In short, legalize drugs and soon the supply of drugs will be drastically reduced, and all of those ruthless former drug dealers will move into another illegal trade such as prostitution or gambling. If we make abortions or guns illegal we can expect them to move into those potentially lucrative markets too. In short, unlike social conservatives and bleeding heart liberals, libertarians understand how black markets work. Free markets are much more efficient enforcers of personal morality than the Drug Enforcement Agency of the United States Government.

The War on Terrorism

The so-called “War on Terrorism,” raises serious problems for the Non-Aggression Axiom. The most obvious is that the concept of “terrorism” connotes specific war strategies (e.g. suicide bombing) that many nations regard as immoral. Secondly, most acts of “terrorism” are executed by individuals and small groups (terrorist cells) and are not directly state-sponsored. These terrorist are usually members of decentralized, loosely- knit, (often) religious organizations that seek to upend established governments. Although many of these organizations are international they do not have “international leaders” that are comparable to presidents, prime ministers etc. As far as we know, Bin Laden encourages terrorist activity, finances a lot of it, and might even suggest targets. But he probably exercises very little control over his followers. As we fight the war on terrorism we mistakenly believe that if we kill or capture Bin Laden, the “War on Terrorism” will end and that his followers will surrender and sign a peace treaty. That’s the way wars between centralized nation states usually end, but not the way wars with decentralized groups will end. Many scholars, therefore, argue that a more effective strategy for fighting the “War on Terror” would be to approach it as a “War of Words,” an ideological struggle for the hearts and minds of future terrorists. That will entail spending much more on “words” than “weapons.” One way to control terrorism is to eliminate its main targets: free-standing nation states. Many of us peacenik libertarians look forward to a distant future where nation states are replaced by a single, international minimal government that focuses its energies on enforcing the non-aggression axiom, contracts, open markets, and borders. Can you imagine: a world without nation states: a Middle East without borders, a Europe without borders, an America without borders? Imagine a world where corporations compete without collusion, subsidies, tariff protection, or favorable tax status? Can you imagine a world order where we all rely on free markets to fulfill our wants and needs? Can you imagine a world where acts of terrorism are universally condemned and national armies are replaced by one single police force?

War and the Non-Aggression Axiom

War is an enormously complex human phenomenon. The fact that throughout human history, in all times and all places groups of human males have been engaged in war, suggests a natural foundation. However, the mere fact that war is natural does not shed much light on whether it is good or not. Libertarians argue that violation of the Non-Aggression Axiom can SOMETIMES be justified only as a means of self-defense. However, the precise meaning of “self-defense,” is a bit fuzzy.” Most wars are initiated by the leaders of nations as offensive acts of aggression in pursuit of specific goals such as resources or territory. Some wars are initiated as preemptive strikes against perceived threats of aggression. Others are initiated as retribution for previous acts of aggression. Therefore, peace-loving libertarians must draw clear lines between self-defense and various acts aggression. But that’s not easy. That’s because the concept of “self-defense” is highly malleable and subject to political manipulation by leaders. Nations naturally “defend” themselves against not only harms, but also threats of harm. The clearest example of self-defense is when a nation is actually under lethal attack by another nation. If Canada or Mexico sent armed troops, tanks, and/or launched missiles across our borders, it would be a clear act of lethal aggression and the United States would be justified in violating the Non-Aggression Axiom. Most of the conceptual malleability associated with the concept of a “threat” can be attributed to imperfect information available to pre-emptive defenders. But most wars have been initiated in defense of economic interests and/or in defense of religious, tribal, or national ideological goals. Since the twentieth century, the United States has justified most of its use of lethal aggression in defense of ideological principles such as “freedom” and/or “democracy.” Given the overwhelming worldwide plurality of aggressive, non-democratic, authoritarian political regimes, this stance drastically expands our list of potential enemies. How many despots can the U.S. afford to depose? How much are we willing to spend on these non-defensive wars and the subsequent nation-building? If war is not a very effective means of reducing non-defensive, state sponsored, lethal aggression, what’s left? How can we promote world peace? Most, but not all libertarians, have faith in markets and see warfare through the lens of market failure. Competitive human males that are engaged in mutually-self-interested commerce tend to be more peaceful and avoid war. Therefore, if we hope to minimize the global incidence of human warfare, we need to prevent the formation of coalitions between unemployed young men and leaders of nations. That entails lessening the influence of government and increasing the influence of non-governmental organizations, especially corporations. How do we do that? Well, in democracies, the first step is for wary citizens to minimize their leaders’ capacity to wage non-defensive wars by limiting the number of troops and resources at their disposal. Although large standing armies may deter invasion by some hostile neighbors, they also provide leaders with a powerful incentive to engage in pre-emptive strikes and/or invade their neighbors. In the tradition established by John Stuart Mill, we libertarians are wary of the power of governments: not only the power of the governments of other countries, but also our own.